Don’t blame city employees for budget mess

In 2008 employees accepted 13 furlough days without pay each year and a 5-percent reduction in pay in response to the recession.

Subsequent pay increases have replaced the missing 5 percent and reinstated the furlough days, but that only got them back to where they were six years ago.

As early as January 2011 employees and management of the city realized their retirement system was going to crash if someone didn’t do something about it. So, all three employee labor groups, through their unions, management and unrepresented employees, accepted pay cuts and a change to their traditional benefit packages.

Prior to 2011 the city paid all the retirement contributions, and employees could retire at age 55. That changed in 2011 with the retirement age being increased to 60. More changes in January 2014 saw employees beginning to contribute 8 percent of their gross pay to their own retirements. The retirement age was also raised to 62.

Changing a retirement system isn’t easy, and these steps will help improve future budgets, but it will take about 20 years.

The city of Lompoc and other local governments have budget problems caused by an increased demand from CalPERS that they contribute massive sums to keep the system afloat. In Lompoc that means $5.8 million less this two-year budget cycle and at least $7.8 million in the next budget cycle, fiscal year 2019-21. These estimates are based on an assumed rate of 7.5-percent return on CalPERS investments for the fund.

But, according to a Bloomberg News report in 2016, the rate of return has been sporadic and frequently missed the previous target goal of 8 percent:

“In fiscal 2015, CalPERS earned 2.4 percent. The pension lost a quarter of its value in 2009. Two years later, it earned a record 20.7 percent, only to see the gain drop to 1 percent the following year. Since the recession, the fund has sought to better gauge its risks from market volatility.”

And, in 2016 the fund only earned a meager 0.61 percent in a year when markets were improving. This year they expect a 5.8 percent return, well below the 7-percent assumption.

Instead of focusing on a solid rate of return, CalPERS directors instead use their investments to support a social and environmental activist agenda shared by state political leaders.

One solution that has been suggested is to seek a pension obligation bond to create a more favorable payment schedule and reduce overall costs.

I asked City Manager Patrick Wiemiller about this and he said, “the city is currently investigating the possibility of using a pension bond, however, initial feedback from the bond issuance community is that we (the city) wouldn’t necessarily save money.”

Apparently, the attractiveness of these investments has waned as the risks to the bond community increased.

Wiemiller anticipates the three tax measures he is proposing will resolve shortfalls through the next 20 critical years, but voters must be convinced that the funds are necessary.

Concerning the current budget talks, I asked if he thought the City Council would come to agreement on a budget before Aug. 31. “I am optimistic that they will meet that deadline,” was his response.

Don’t blame city employees for this mess. They’ve participated in a solution for the last nine years. They don’t control the CalPERS investment strategy and with most retirement incomes of less than $40,000 a year, most of them aren’t getting rich.